Posting for

Wednesday, June 3, 1998

by: Bert Rush

brush@firstam.com

FRAUDULENT RELEASES/FORGED RELEASES/ESCROW AND CLOSING

(The byline thing above is new--it contains the index words for the LandSakes archives, still being worked on.)

I'd call this a "hot topic" for training. This isn't very scientific, but just in the last eight weeks or so I've noticed a number of claims involving fraudulent releases for residential properties. Is there an increase in this kind of thing?

Monterey, CA--We were asked to handle a refinancing of two newly-constructed "spec" homes, which was quickly converted to a sale escrow. Both buyer and seller expressed urgency such that the sales had to close not later than June 21, 1996. There was an existing construction deed of trust against each property, one for $208,000 and the other for $189,000. On June 20, 1996 the seller appeared late in the day with original reconveyance (release) documents for the existing deeds of trust. We closed the next day and disbursed virtually all the sale proceeds to the seller.

The reconveyances were forged. The seller has been elusive, and is now believed to have left the county. Currently, First American has paid $385,000 to satisfy the fraudulently-released D/T's, plus legal expenses of $15,070 to investigate and seek recovery.

In-house counsel Jamin Hawks points out that allowing the seller to bring reconveyance documents to closing is a "breach of procedure." My question is: How common is it?

Cass County, MO--We insured a sale of a residence for about $52,000. The seller, Linda, bought the property in 1987 with $42,000 loaned by her mother, Dolores--and in our transaction there was an open deed of trust in favor of Dolores securing repayment of the $42,000. Just prior to closing the seller submitted a release and payoff statement, each purportedly signed by mom Dolores, showing no amount due. The transaction closed and virtually all sale proceeds were disbursed to Linda, who gave much of it to her husband allowing him to pay cash for a new Taurus.

Soon Dolores contacted us wanting to be paid. She said the release and payoff statement were forged by Linda. Linda admits she signed her mother's name, but says she had mom's permission. First American has paid $52,000 for a release of the 1987 deed of trust, and is pursuing Linda and her husband for recovery. With luck we'll get the Ford.

In-house counsel Nancy Eisenschiml points out the "red flag" of this being a family matter coupled with no consideration paid for the release. Indeed, it's common for victims of forgery to be related to the forger. Shouldn't something have been done to verify mom's purported payoff statement? Looks like another case of allowing the seller to handle and deliver crucial docs.

Memphis, TN--Hang on to your blue seude shoes (here we go again). Our agent was asked to handle a refinancing for a new loan amount of $22,700. The owner/borrower obtained a written payoff statement which he hand-delivered to the agent. The agent closed and disbursed about $17,300 to the prior lender with the release "to come."

The prior lender now tells us an additional $24,000 is needed to clear its loan. It appears the owner/borrower altered the payoff statement by changing the amount due from $39,731.78 to $17,164.39. As pointed out for me by in-house counsel David Dickson, the typeface for the crucial payoff figures differs from that for the remainder of the payoff statement--so it's an obvious alteration. And, again, the agent relied on a crucial document handled and delivered by the owner.

Soooo...while it may be premature to call them part of a trend, we can probably learn some lessons from these claims. At a time when lenders are advertising "no tax returns, no proof of employment, no lengthy loan app" we could take some lumps if we start to drop our guard at closing.

Comments, questions, argument? Press the "Reply" button and send your thoughts to LandSakes.

**********

Following up on today's (June 3) posting, attached is a copy of the altered payoff statement involved in the Memphis claim. To view it just double click on the http link below.

And, Gene Gurvits (Boston) writes:

You can add a case in Boston to the trend of obtaining fraudulent releases. An individual bought a house in Boston in October of 1987 financing the purchase with a mortgage to an outfit called Walsh Securities Inc., a New Jersey corporation. Three months later, a release shows up on record signed by what appears to be an officer of Walsh Securities and bearing an acknowledgment of a New Jersey notary. In a couple of months, the owner goes to a different lender and borrows $80,000.00 secured by what the lender thought was going to be the first mortgage of record. First American insured the new lender who is now being sued by Walsh Securities claiming that the discharge was recorded fraudulently. We are now in the process of investigating the relationship among all parties involved. There is currently a disagreement in the office as to whether or not this claim was preventable, i.e. should the closing agent have paid more attention to the fact that the discharge appeared on record so soon after the mortgage and without the refinance. I will keep you updated as this matter develops further.

Reply to Gene: You raise an interesting question: Does an abstractor or attorney violate his/her standard of care when they pass on a release recorded under suspicious circumstances? And what are "suspicious circumstances" sufficient to require further investigation? I'd also like to see the phoney discharge to tell whether it appears genuine.

I would say the examiner should have looked at the discharge in this case and, if it appeared regular, passed on it. I think this comports with John Hollenbeck's streamlined procedures. In this connection, take a look at the Brentwood, CA story in Claims Chronicles 8--where the examiner passed on two deeds of trust, relying on a computer run from an automated title plant which reflected the two D/T's as affected by two later-recorded docs coded "PR" (for "partial reconveyance").

On second thought, Gene, please fax me a copy of that phony discharge. I'd like to see it. The fax number is (714) 647-2184. Thanks!